Top 100: SAIC wins put troubles behind it

Company's success moves it beyond rough spots of 2011

By Heather Hayes

Jun 14, 2012

The last 18 months have been sundry times for Science Applications International Corp., as it’s been a period marked by a contracting scandal, criminal prosecution and a leadership shakeup but also by growth, transformation and hope, according to K. Stuart Shea, chief operating officer for the McLean, Va.-based firm.

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SAIC’s most serious woes last year stemmed from its troubled $635 million CityTime contract, a program to build a new timecard system for New York City. The effort was already behind schedule and over budget when two SAIC employees and several personnel of an SAIC subcontractor were caught running an overbilling, bribery and kickback conspiracy.

Ultimately, SAIC agreed to pay a $500.4 million in fines to settle the case and to allow an outside monitor to keep tabs on its operations. Company officials have reacted by implementing a number of policy and process changes, including enhancements to employee training and its ethics program and a corporate-level initiative that will automatically identify and review programs for fraud or corruption risk.

In spite of the turmoil, the contracting giant continued to perform at an impressive level in the federal space in 2011, earning $5.9 billion in prime contract dollars and landing at No. 4 on Washington Technology’s list of Top 100 Federal contractors.

“Certainly, this has been a time in our history that we’d like to move beyond because we are a company with a long tradition and a history of people focused on always doing the right thing, and now we’ve had a few bad apples really destroy a good part of our reputation,” said Shea, who was promoted from president of the Intelligence, Surveillance and Reconnaissance Group to COO earlier this year.

“But we take responsibility for it and I think as a result of the extensive changes we’ve made and what we’ve focused on and where we’ve put our energies, SAIC will be a much better company and a much stronger company moving forward," he said.

William Loomis, managing director of Stifel Nicolaus, agreed that this episode will only be a bump in the road for SAIC, since the company moved so aggressively once the problem was uncovered and has taken steps “to ensure that it doesn’t happen again.”

“I do not think the CityTime will impact SAIC’s competitive position in the market,” Loomis said.

In fact, SAIC’s future in the near term appears to be bright for a number of reasons, not the least of which is that, as of this past March, the company has a new CEO. John Jumper served as Air Force chief of staff during the first George W. Bush administration and was previously a member of the SAIC board of directors.

Shea said Jumper is focused on increasing shareholder value and refining and executing the company’s new strategic focus, which has been developed over the past three years in anticipation of a more austere federal budget and in response to changes to the contracting environment.

The new plan includes moving away from platform-based programs and pursuing the high-growth market areas of health, energy, ISR, cybersecurity and logistics readiness and sustainment, as well as trimming corporate overhead and emphasizing the pursuit and capture of large $100 million-plus programs.

The strategy is already working, Shea said. Last year, the company increased its $100 million-plus contract wins from 26 to 40. They included the Tire Successor Initiative, a Defense Logistics Agency vehicle worth up to $1 billion to provide supply chain management of land and aircraft tires used by the Armed Services and foreign military customers; the NASA Integrated Communications Services contract, which has a maximum potential value of nearly $1.3 billion for 10 years; and the $200 million Plain Field Renewable Energy Biomass Project, which will create the clean energy needed to power as many as 37,000 homes.

The company also shored up its strategic plan by acquiring Vitalize Consulting Solutions Inc., a provider of clinical, business and IT services to the healthcare market. It also sold its oil and gas IT business which had been languishing in the current economic climate and no longer provided any strategic advantage.

“SAIC is actually doing quite well in the current environment,” Loomis said. “Most of its similar sized peers have service units that are declining, while SAIC has been about flat on revenue. But things will get tougher for SAIC and the industry over the next couple of years, I think.”

Shea, however, is bullish on the company’s growth prospects. “One of the key things we’ve done right is that we’ve gotten out in front and been pragmatic about this market,” he said. “We’re executing the steps today that we’ve taken and strategies we’ve put in place over the last 36 months and hoping that it brings us right through those more difficult budgetary times. We are cautiously optimistic about what the future holds.”

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